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Are Hedge Funds Right About L Brands Inc (LB)?

“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

L Brands Inc (NYSE:LB) has seen an increase in support from the world’s most elite money managers recently. LB was in 35 hedge funds’ portfolios at the end of December. There were 27 hedge funds in our database with LB holdings at the end of the previous quarter. Our calculations also showed that LB isn’t among the 30 most popular stocks among hedge funds.

In today’s marketplace there are a multitude of metrics stock market investors put to use to appraise publicly traded companies. A pair of the most under-the-radar metrics are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the top hedge fund managers can outperform their index-focused peers by a solid margin (see the details here).

Gabriel Plotkin Melvin Capital Management

Let’s take a gander at the fresh hedge fund action regarding L Brands Inc (NYSE:LB).

What does the smart money think about L Brands Inc (NYSE:LB)?

At Q4’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in LB a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

LB_apr2019

Among these funds, Makaira Partners held the most valuable stake in L Brands Inc (NYSE:LB), which was worth $95.7 million at the end of the third quarter. On the second spot was SRS Investment Management which amassed $80.6 million worth of shares. Moreover, Citadel Investment Group, Point72 Asset Management, and Alyeska Investment Group were also bullish on L Brands Inc (NYSE:LB), allocating a large percentage of their portfolios to this stock.

Consequently, some big names have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, created the biggest position in L Brands Inc (NYSE:LB). Point72 Asset Management had $58.8 million invested in the company at the end of the quarter. Gabriel Plotkin’s Melvin Capital Management also made a $38.5 million investment in the stock during the quarter. The other funds with brand new LB positions are Ray Dalio’s Bridgewater Associates, D. E. Shaw’s D E Shaw, and Sara Nainzadeh’s Centenus Global Management.

Let’s also examine hedge fund activity in other stocks similar to L Brands Inc (NYSE:LB). We will take a look at Omega Healthcare Investors Inc (NYSE:OHI), Okta, Inc. (NASDAQ:OKTA), Ubiquiti Networks Inc (NASDAQ:UBNT), and PVH Corp (NYSE:PVH). All of these stocks’ market caps match LB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OHI 11 158341 -1
OKTA 40 672928 8
UBNT 19 387799 3
PVH 35 814656 -9
Average 26.25 508431 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $508 million. That figure was $641 million in LB’s case. Okta, Inc. (NASDAQ:OKTA) is the most popular stock in this table. On the other hand Omega Healthcare Investors Inc (NYSE:OHI) is the least popular one with only 11 bullish hedge fund positions. L Brands Inc (NYSE:LB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately LB wasn’t in this group. Hedge funds that bet on LB were disappointed as the stock returned 8.2% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.

Disclosure: None. This article was originally published at Insider Monkey.

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